Joe Oliver: The Liberals must adapt to Trump — but they'll need to abandon their low-carbon, high-tax ideology first

Joe Oliver: There has been a seismic event in U.S. politics, and Canada will have to adjust to a new reality. We can use it to our advantage, but they'll need to abandon their low-carbon, high-tax ideology first

Some Canadians, their hair on fire, are terrified about the terrible things an appalling Donald Trump might do to his country and the world. They need grief counselling.

A more balanced perspective, and one of direct relevance to Canada, is that the president-elect is likely to implement several platform promises that advance America’s national interest, but which could seriously impact our country. Their implications relate to the viability of a national carbon tax, fiscal policy and funding for our military. Canada can, and should, respond in a way that protects our own national interests. The big question is whether the necessary response will prove too difficult for the Trudeau government to swallow.

The Liberal mantra has been that Canada must impose a carbon tax to meet our climate-change obligations, even though there was never a chance the U.S. would do the same under President Barack Obama or even under a Clinton presidency. Since Trump’s election, questions are finally being raised whether a Canadian carbon tax can be justified, especially one that is not guaranteed to be revenue neutral. It cannot be.

We have all heard the justifications used to champion a national carbon tax. Canada, we’ve been told, must do something because it will make a difference. It will not. Our 1.6 per cent of global emissions is a tiny part of an international effort that hopes, in total, to reduce global temperature by half-a-degree Celsius by 2100, provided every country improbably does its share. And yet, again and again we are lectured that we must do our part. But other countries are not and will not do theirs, including the U.S.

We’re told Canada needs to show leadership. To what end? Do we seriously believe that China, India or Russia will care a whit? Should we debilitate our economy just to feel morally superior, even as the poorest Canadians inevitably bear a disproportionate share of the climate-control burden?

And now we are hearing a new and suddenly popular justification: That a low-carbon economy is more efficient. Were that only so. Perhaps something like that might be, eventually, following significant investment in R&D. But that does not reflect current realities. Witness Ontario, which has become a far costlier place to do business since its disastrous move to decarbonize.

When a central plank in a government’s platform has been exposed as exceedingly ill advised, it has a choice: it can find an alternative, or it can stubbornly hang on for the sake of consistency

So, with no meaningful environmental benefits and costs escalating to over $2,500 per household in six years, a carbon tax will render us uncompetitive with our biggest trading partner. That is a serious problem, since nearly three-quarters of Canadian exports will go to American customers this year, according to Global Affairs Canada. When a central plank in a government’s platform has been exposed as exceedingly ill advised, it has a choice: it can find an alternative, or it can stubbornly hang on for the sake of consistency; which will the Trudeau government do?

The issue of competitiveness also arises in the context of Trump’s determination to boost the economy by cutting taxes “across the board.” Subject to congressional approval (with both houses controlled by Republicans), Trump would dramatically increase the standard personal deduction and pare the current seven personal tax brackets down to three. He also said he would cut the corporate tax rate from 35 to 15 per cent.

Since lower taxes stimulate investment, savings and consumption, a stronger American economy could increase capital spending in Canada, provided our higher tax rates do not discourage investment. Canada did well when we had a tax advantage, but that advantage could reverse in a flash. Economic history demonstrates that lower taxes are far superior to the traditional tax-and-spend Liberal approach to counter slow long-term growth. Following the American lead would make sense for the Canadian economy. Alas, that goes against the grain for our current government.

Recall that the Liberals presented infrastructure as the central reason for a $145-billion deficit over the length of their initial term. However, the Fraser Institute has calculated that infrastructure represents a mere fifth of the total and, of that, less than 10 per cent will be devoted to trade and transportation. The overarching problem, then, is that the federal government is incurring massive deficits for spending that will not stimulate long-term growth. In a Trumpian world, that disadvantage will be exacerbated by an uncompetitive tax structure.

A third Trump policy initiative that will leave the Liberals torn between their instincts and the country’s interests relates to a comment the president-elect made during the campaign about not defending NATO members who did not pay their way. The Donald is a negotiator. The U.S. is the bulwark of the alliance so, like Obama, Trump thinks it reasonable that there should be no free riders. He is signalling he will not let countries get away with contributing less than their fair share for their own defence. Canada is spending half the target two per cent of GDP, putting us in the bottom third of contributing members. While spending an additional $20 billion is not in the cards, the pressure will be on Canada to up its numbers.

When asked by a reporter what was most likely to throw a government off course, former British prime minister Harold MacMillan famously replied, “Events my dear boy, events.” There has been a seismic event in U.S. politics, and Canada will have to adjust to a new reality. We can use it to our advantage. Or, if the current government allows itself to remain hidebound by ideology and promises, we can become seriously disadvantaged.

Joe Oliver is the former minister of finance. He is seeking the nomination for the Progressive Conservative Party of Ontario in York Centre.

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